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Short Sales Stump Buyers, Sellers & Realtors

by Pacita C. Dimacali

As things move faster than a speeding bullet, rules, laws, practices and challenges change along the way.

In the last few months, there have been some recent developments that if you blinked, you would have missed it. One of the most important is the Mortgage Forgiveness Debt Relief Act. There is still rampant misunderstanding about the provisions of this act. So we should bookmark this FAQ from the IRS website as a reference.

We predicted that there will be a growing number of folks who will walk away from the heavy burdens of their mortgage payments by taking advantage of the provisions of this Act. Indeed, we are seeing the onslaught of short sales.

How well do you know what to do with a short sale?

Lately, even some of the most seasoned REALTORS and brokers are stumped for the best answers. When we turned to our local boards, we received different answers. Some examples:

When a short sale Seller and a Buyer reach an agreement, even if the Lender hasn't formally accepted the offer, the buyer should open escrow and the initial deposit should be transferred into an escrow account. Right? Well...not everyone agrees.

  • Some brokers instruct their agents that the escrow should only be opened after the lender formally accepts.
  • But local MLS (Multiple Listing Service) rules differ from area to area, state to state. Some states have special Short Sale Addendum that provides instructions when escrow should be opened and when the initial deposit should be transferred to an escrow account.
  • Typically, the Buyer will require formal and written acceptance by the short sale lender before opening escrow.
  • What is important to remember is that the buyer’s own lender will not start the loan process without a ratified contract.
  • Further, the Buyer’s initial deposit fund should not be tied up in escrow when there is no guarantee that offer will be ratified.

When there is a ratified agreement between the short sale seller and the buyer, the listing agent should post the listing as pending (or pending show for back ups). Right? Well...again, not everyone agrees, and the decision is left up to the local MLS.

  • As short sales became more prevalent, many MLS guidelines changed to include something like PSLA (pending subject to lender approval) or PR (pending ratification).
  • Some MLS aver that within 24 hours of a ratified agreement, the listing should be changed to pending. Some say that it is contingent.
  • Others say that it's active until the lender accepts
  • The local MLS boards who decreed that the posting should be changed to pending are keeping discussions open about this rule... perhaps because of the length of time it takes to get an offer accepted in a short sale, during which time some buyers lose interest and find something else, leaving the seller (and the lender) to start all over again. The longer it takes for a short sale to complete, the closer it gets to becoming an REO (real estate owned or bank-owned).

When there is an accepted offer (Seller and Buyer agree), all other new offers don’t have to be presented to the Buyer or the Lender unless the Buyer in first position backs out. Right? Again, the answers vary.

  • Some say that all subsequent offers must be presented to the Lender who makes the final decision.
  • Others say it's still the Seller's property, and it's the Seller's decision whether or not to look at other offers.
  • However, it also depends on the Lenders some of whom will only look at the best and highest offer. Nonetheless, as long as there is no accepted and ratified offer, and if a better and higher offer comes in, and if that recent offer will yield the better return, the quicker close, and the highest possibility of closing escrow (like an all cash, no contingency offer), that offer must be presented to the Seller and the Lender.

Is it any wonder that we are seeing a lot of seminars on short sales? It's best that we be educated on the right way to do these types of sales than to rely others for answers(which may be mere opinions, not facts).

Ask 10 people a question and you'll get 10 different answers.

Pacita Dimacali - e-PRO, SRES, CDPE, MBA East Bay, North CA real estate. Serving Alameda and Contra Costa Counties. Helping clients with their real estate needs. Experienced and seasoned short sale specialist. Call for exceptional real estate service and results! Office phone: (510) 748-1148

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